The Housing Headwind

published: May. 13, 2011

belief, at Hennion & Walsh, that the real estate market recovery (or lack thereof) could be one of the areas that hold back any significant economic recovery gains in 2011. This belief stems not only from a review of existing sales activity in the residential real estate market but also from the historic number of defaults and foreclosures that took place in 2010 leaving a large inventory of available homes.

Two statistics that we generally look at when we assess the housing market are existing single-family home sales and prices as well as pending home sales. A review of these two data points, as provided by the National Association of Realtors® as of February 2011, shows that the real estate recovery has not only stalled but has even started to retreat. While certain areas of the country have experienced an increase in median sales and prices with respect to existing single-family homes over the last year (Ex. Baltimore, Cincinnati, Miami, Phoenix, Washington DC), the U.S., on average, experienced negative year-over-year sales and prices over the last one year period through the end of February 2011.

February Metro Area Existing Single-Family Home Sales and Prices

*All data reported herein is unadjusted for seasonality

Median Price

% Change from 1 Year Ago

#

MSA

Feb-10

Feb-11

Price

Sales

1

Atlanta

110,100

95,100

-13.6%

-4.0%

2

Baltimore

236,200

214,200

-9.3%

17.0%

3

Boston

315,800

303,200

-4.0%

-10.9%

4

Cincinnati

120,100

113,000

-5.9%

5.5%

5

Dallas-Fort Worth

139,700

146,800

5.1%

-14.5%

6

Houston

147,500

153,500

4.1%

-0.1%

7

Indianapolis

112,300

109,300

-2.7%

-12.0%

8

Kansas City

122,000

119,400

-2.1%

-9.8%

9

Miami-Ft. Lauderdale

190,900

155,400

-18.6%

46.4%

10

Minneapolis-St. Paul

159,000

142,500

-10.4%

-1.7%

11

New Orleans

n/a

n/a

n/a

n/a

12

New York-Northern New Jersey-Long Island

380,000

376,700

-0.9%

0.0%

13

Philadelphia

201,600

194,600

-3.5%

-4.1%

14

Phoenix

139,400

126,900

-9.0%

8.4%

15

Portland

234,200

214,800

-8.3%

-0.1%

16

San Antonio

n/a

n/a

n/a

n/a

17

San Diego

349,500

367,800

5.2%

-3.3%

18

St. Louis

102,700

111,100

8.2%

-8.6%

19

Washington, DC

290,600

287,500

-1.1%

5.8%

20

U.S.

163,900

157,000

-4.2%

-3.1%

**NOTE: There may be differences between this data and locally reported data because of differences in geographic coverage area and housing types.

With respect to valuations, low overall demand for housing and increased supply certainly contribute to price declines but the recent surge in the magnitude of price declines is likely related to banks relieving themselves of properties at distressed prices (i.e. “distressed sales”).

Interestingly, we have also observed a growing correlation between the jobs market and the housing market. To this end, Capital Economics reported in their May 11, 2011 “U.S. Housing Market Monthly” report that, “Some regional housing markets appear to be benefitting from an improvement in labour market conditions. Illinois and Oregon were two of the five States that enjoyed a decent increase in employment in the year to the first quarter. That may explain why prices in Chicago and Portland are rising.”

Perhaps more daunting that the existing home sales statistics are pending home sales. Pending home sales represent pending sales of existing homes where a contract has been signed but the transaction has officially not been closed yet. We often view this statistic as a leading indicator for the retail housing market. Unfortunately, based upon existing data again supplied by the National Association of Realtors®, these forward looking indicators do not look promising. According to the National Association of Realtors®, as of February 2011, pending home sales in the U.S., on average, was down 8.2% (seasonally adjusted) and 9.3% (non-seasonally adjusted) respectively on a year-over-year basis.

As a result, while a “double-dip” in residential real estate still seems unlikely; more bumps may lie ahead in 2011 for the fledgling recovery in the housing market. These bumps could have a psychological and economic impact on U.S. consumers as home equity still accounts for over 16% of household net worth according to Federal Reserve data as of the end of the second quarter of 2010 (down from a high of close to 28% in 1980s).